Ethiopian soldiers, pictured in deployment on the border with Eritrea in 2005. A dispute over the frontier triggered a two-year border war -- relations remain poisoned to this day (AFP Photo/MARCO LONGARI)

Addis
Ababa (AFP) - Ethiopia's surprise declaration that it will implement a
nearly 20-year-old peace agreement with its neighbour Eritrea could
spell an end to a long cold war that has damaged both countries,
analysts say.

Reconciliation,
they say, could transform both nations' politics and economies -- but
it first faces a mighty hurdle of animosity between the two neighbours.

"This is a really important first step," said Dan Connell, a researcher on Eritrea at Boston University.

"We
should welcome the announcement with a degree of caution," said Rashid
Abdi, Horn of Africa director at the International Crisis Group think
tank in Nairobi.

Once a part of Ethiopia, Eritrea fought a three-decade independence war against Addis Ababa.

The
two then fought again, from 1998-2000 over a disputed border, and
tensions have persisted after Ethiopia refused to accept the 2002 ruling
of a UN-backed boundary commission that divided up contested territory.

On
Tuesday, Ethiopia's new prime minister Abiy Ahmed -- a former army
officer who fought against Eritrea -- declared the country would abide
by the accord, handing back the occupied frontier town of Badme.

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"We should end this suffering and fully return to peace," Abiy said in a speech the day after the announcement.

Eritrea
is yet to respond to the announcement while Ethiopia has not said
whether its troops have begun their withdrawal from Badme.

- Isolated, authoritarian -

Eritrea's
president, Isaias Afwerki, has long justified restrictive rule,
punishing military conscription and the jailing of dissidents as
necessities to defend itself against its much larger neighbour.

His
authoritarian leadership has left his country diplomatically isolated
and triggered an exodus of Eritreans making the dangerous migration to
Europe.

The Ethiopian move, "pushes the ball into Eritrea's court and actually puts pressure on Eritrea," said Abdi.

It could in fact undermine Isaias' rule.

"They've evolved a system of governance [in Eritrea] that has depended almost entirely on a national emergency," said Connell.

Supporters
of Eritrea say it was doubly betrayed, by Ethiopia refusing to accept
the boundary ruling and the international community -- chiefly the US --
failing to hold Addis Ababa to account.

The
tiny Red Sea nation was once part of Ethiopia, comprising its entire
coastline, until 1993 when it voted to secede, rendering Ethiopia
landlocked.

Not long after, a disagreement over the demarcation of their shared border sparked a war that killed around 80,000 people.

A UN-backed boundary commission ruled in Eritrea's favour in 2002 but Ethiopia ignored the findings.

Abiy's
surprise announcement was unanimously sanctioned by 36 top officials of
the ruling Ethiopian People's Revolutionary Democratic Front (EPRDF),
Connell said. A Western diplomat said Eritrea was not consulted.

Since
taking office in April, Abiy has been under pressure to maintain years
of rapid economic growth while addressing unrest over the EPRDF's
authoritarian one-party rule.

This
week, as well as announcing the unilateral detente with Eritrea, Abiy
lifted the latest state of emergency imposed to quell anti-government
protests, and permitted for the first time foreign investment in key
state-run industries, including its sole telecom company, in a bid to
address rising debt and a shortage of foreign exchange.

- 'More than lines on a map' -

Since
the war with Eritrea, Ethiopia has relied on Djibouti's port most of
its imports and exports, and has imposed a costly militarisation of its
northern frontier, which local leaders complain is hampering
development.

But
announcing compliance with 2000 peace deal and 2002 boundary ruling,
and implementing them, are very different things, Connell said.

Under
the UN ruling, Ethiopian troops must pull out of the disputed area and
neighbouring communities will find themselves marooned in either
country.

Gebru
Asrat, who served as president of Ethiopia's Tigray state during the
war, said the hostilities are about more than lines on a map.

He
traced the conflict's roots to Eritrea's 1997 decision to introduce its
own currency, enraging Addis Ababa and complicating trade.

"Future
negotiations must address this important issue," said Gebru, who now
leads an opposition party. "Otherwise sustainable peace may not prevail
in the region by ceding land to Eritrea."

Lea
Brilmayer, a law professor at Yale University, argued Eritrea's case
before the boundary commission and is sceptical of Ethiopia's
announcement.

"There
have been previous occasions when it seemed that things were
definitively solved, only to find out that Ethiopia had a rather
eccentric and self-serving idea about what it meant to treat the
decision as final and binding," she said.